Supreme Court Rules against SEIU in Knox Case; Protects Liberty

The U.S. Supreme Court once again has put the nation’s public-sector unions on notice: Fee-paying nonmember workers under contract can’t be forced to subsidize political causes they don’t like. Last Thursday, June 21, in its long-awaited decision in Knox et al. v. SEIU, the Court affirmed a longstanding principle. Ruling 7-2 on the merits of the case and 5-4 on the issue of First Amendment rights, the Court concluded that the Sacramento-based Service Employees International Union (SEIU) Local 1000, California’s largest public employee union, had deprived “agency shop” workers of the right to opt out of making monetary contributions toward union advocacy. The ruling may have long-term implications for state and local fiscal reform, especially in jurisdictions where union-driven public-sector benefit commitments are prompting major cutbacks in basic services.

A union contract shouldn’t render unionized public-sector employees, any more than their compatriots in the private sector, hostage to the preferences of their leaders. The Supreme Court several times has said as much. In Abood v. Detroit Board of Education, 431 U.S. 209 (1977), the Court, though establishing the constitutionality of the union shop for the public sector, also held that nonunion public employees have a First Amendment right to veto the portion of compulsory fees dedicated to contributions to political candidates or “expressions of political views unrelated to [the union’s] duties as exclusive bargaining representatives.” Nine years later, in Chicago Teachers Union v. Hudson, 475 U.S. 292 (1986), the High Court unanimously affirmed this view, holding that due process requires that a public-sector union can collect agency fees from nonmembers only if it observes certain procedural safeguards. The Court ruled that unions provide nonmembers with a “fair opportunity” to assess the impact of paying for non-chargeable union activities. And in a Michigan case, Lehnert v. Ferris Faculty Association, 500 U.S. 507 (1991), the Court concluded that union activities, in order to be chargeable to nonmembers, must be both “germaine” to the collective bargaining process and do not “significantly add to the burdening of free speech that is inherent in allowance of an agency or union shop.”

These decisions have landmark parallels in the private sector. In Communications Workers v. Beck, 487 U.S. 735 (1988), which originated in Maryland among several dissenting AT&T employees, the Supreme Court held that fee-paying nonmembers can’t be forced to fund union activities beyond collective bargaining, contract administration and grievance adjustment. Thus, the Communications Workers of America had to provide the dissenters a refund of non-business activities. Four years earlier, the High Court had ruled in Ellis v. Railway Clerks, 466 U.S. 435 (1984), that the Railway Act prohibits unions from coercing financial support from fee-paying workers on issues unrelated to collective bargaining and contract administration, and the parts of union publications reporting on non-chargeable activities. The court in the latter case also barred unions from using such funds for involuntary short-term loans – “interim assessments.” A union, the court opined, “cannot be allowed to commit dissenters’ funds to improper uses even temporarily” under which unions collect full payments, use part of them for non-chargeable purposes, and later refund that part.

What we have here, then, is a clearly established court precedent, over decades and at the highest level: A union, whether representing public- or private-sector employees, can’t use fees for non-business purposes, not even on a temporary basis, without the prior consent of affected workers. Service Employees Local 1000, however, isn’t the kind of union impressed with precedent, especially when their leaders are mobilized for political action. And back in 2005, it was mobilized. That’s what brought this case about.

Arnold Schwarzenegger, a Republican, had become governor of California, having won a recall election in the fall of 2003 over incumbent Democratic Governor Gray Davis. His supporters saw an opportunity to curb rapid growth in wage/salary and benefit compensation for state and local employees. They placed several initiatives on the ballot for November 2005. Two of them, Proposition 75 and Proposition 76, especially aroused the ire of public-sector unions. Proposition 75, the so-called “paycheck protection” law, pursuant to the aforementioned court decisions, would require unions to obtain written consent from employees before imposing fees on them for political purposes. Proposition 76, formally known as the Living Within Our Means Act, would limit state expenditures by changing the school finance formula and giving the governor unilateral authority, under certain circumstances, to reduce appropriations for public-employee compensation. “We don’t have a revenue problem,” said Gov. Schwarzenegger at the time. “We have a spending problem. In fact, the way the formulas now work, we will never catch up. No matter how well we do, the current system is programmed to spend even more. It is on automatic pilot. It is accountable to no one.”

Union officials evidently didn’t think so. They responded with full-throttle opposition, with accompanying fundraising. The California Teachers Association, an affiliate of the National Education Association, imposed a $60 per member annual special assessment on its 335,000 members allegedly earmarked for debt retirement, but which on closer inspection, functioned as campaign fodder to defeat Proposition 75 and 76. A heavily union-funded ad hoc group, the Alliance for a Better California, declared, “Proposition 75 was designed and orchestrated by Governor Schwarzenegger’s supporters including right-wing extremists and his corporate contributors who want to cut funding for education, health and safety.” Lou Paulson, president of the California Professional Firefighters, called Proposition 75, “this sneaky initiative.” Deborah Burger, president of the California Nurses Association, wrote that Gov. Schwarzenegger was engaging in a “daily auction of public policy to a long list of big business donors.” United Teachers Los Angeles held a “Protest Arnold” rally which featured such placards as “True Lies = Broken Promises” and “We Earned Our Pensions in ‘A’ Classrooms, Not ‘B’ Movies.”

It’s understandable why union leaders were on full alert. They knew that if employees under union contract were free to withhold contributions for politically-related purposes, many would do just that. In Washington State, after a similar ballot proposal (“Initiative 134”) was passed in 1992 and went into effect in 1994, the portion of unionized public school employees giving voluntarily to the Washington Education Association’s political action committee (PAC) dropped from 82 percent to 11 percent after just the first year. And in Utah, where the legislature in 2001 had created its own paycheck-protection law, the share of Utah Education Association members contributing to the union PAC fell from 68 percent to less than 7 percent after the law went into effect in 2004.

SEIU Local 1000, which represents about 95,000 employees across nine bargaining units, was highly active among the opposition to California’s voter initiatives. But to be effective, the union would need money. In June 2005, the SEIU sent out its scheduled Hudson notice to covered nonmembers, informing them of the agency fee for the year ahead. On July 30, following the expiration of the notice’s 30-day objection period, the SEIU announced its intent to levy a 25 percent fee hike under the rubric of an “Emergency Temporary Assessment to Build a Political Fight-Back Fund.” The fund’s justification was as candid as its name. The money, wrote the local, would be used “for a broad range of political expenses, including television and radio advertising, direct mail, voter registration, and get-out-the-vote activities in our work sites and in our communities across California.” The message concluded: “Each of us must do our part to turn back these initiatives which would allow the Governor to destroy our wages and benefits and even our jobs, and threaten the well-being of all Californians.”

In a late-August letter, the union rolled out the specifics. For a limited period starting in September, the standard fee per worker would be raised to 1.25 percent of gross monthly salary; the $45-per-month cap on regular dues would not apply here. The extra money, the union admitted, would be used to defeat Propositions 75 and 76 on November 8, 2005 and “another attack on [its] pension plan” in June 2006. Moreover, the contribution would help “elect a governor and a legislature who support public employees and the services [they] provide.” How much of a bite would this take out of worker paychecks? Based on its most recently audited year, the SEIU estimated that 56.35 percent of its total expenses in the coming year would consist of chargeable collective bargaining-related activities. In other words, nonunion employees would be forced to pay the non-chargeable 43.65 percent – of which the Fight Back Fund surely was a part – unless they indicated objections in writing within 30 days of receiving their Hudson notice. The SEIU also threw in a curve not contained in the 1986 decision: The agency fee was subject to increase at any time without further notification.

One of the nonunion employees receiving the letter was Dianne Knox, who made a living as a regulation writer for a small state agency. She called SEIU offices to complain that she wasn’t given a fair opportunity to object. A union area manager responded there was nothing that could be done, but as consolation, those employees filing timely objections had to pay only 56.35 percent of the temporary increase. Knox pressed on. Eventually her lawyers sought, and received, class-action status on behalf of 28,000 nonunion employees forced to contribute to the Fight Back Fund. Some had filed timely objections; others had not. In 2008, well after the California vote, a federal district court granted certiorari (i.e., legal standing) to the petitioners, stating the union “fully intended to use the 12 million additional dollars it anticipated to raise for political purposes.” Thus, the SEIU was wrong to rely on the previous chargeable expenses estimate of 56.35 percent and had to send out a new notice giving all class members 45 days to object. And it would have send refunds to those objecting within the 30-day Hudson notice time frame.

Service Employees Local 1000 appealed. A divided Ninth Circuit panel in 2010 ruled on its behalf. The majority ruled that the union, in accordance with Hudson, made a reasonable attempt to balance its own interests with those of employers and nonmember employees. Knox and her co-plaintiffs appealed to the Supreme Court. Following the granting of certiorari, the SEIU, which originally sought a dismissal of the case as moot, quickly sent out a notice offering a full refund to all class members. The High Court wasn’t impressed: “Such post-certiorari maneuvers designed to insulate a decision to review by this Court must be viewed with a critical eye…The union is not entitled to dictate unilaterally the manner in which it advertises the availability of the refund.”

On the merits of the case, the Court found for the plaintiffs. Writing for the 7-2 majority, Justice Samuel Alito, referring to the Court’s earlier Davenport ruling (2007) on behalf of dissenting Washington State teachers, observed that “unions have no constitutional entitlement to the fees of nonmember-employees.” The Hudson decision, moreover, far from calling for a “balancing” of rights, made clear that any exaction of fees from unwilling contributors had to be “carefully tailored to minimize the infringement” of free speech rights. Shortly thereafter, Alito lowered the boom:

By authorizing a union to collect fees from nonmembers and permitting the use of an opt-out system for the collection of fees levied to cover non-chargeable expenses, our prior decisions approach, if they do not cross, the limit of what the First Amendment can tolerate. The SEIU, however, asks us to go further. It asks us to approve a procedure under which (a) a special assessment billed for use in electoral campaigns was assessed without providing a new opportunity for nonmembers to decide whether they wished to contribute to this effort and (b) nonmembers who previously opted out were nevertheless required to pay more than half of the special assessment even though the union had said that the purpose of the fund was to mount a political campaign and that it would not be used for ordinary union expenses. This aggressive use of power by the SEIU to collect fees from nonmembers is indefensible.

The SEIU, and more broadly, organized labor, lost this one. But in their minds, the issue isn’t settled because to be covered by a union contract imposes a de facto obligation to endorse all activities of the union, including political ones. Since the union is fighting for the interests of nonmember fee payers as well as full-fledged members, any expenditures it incurs, whether at the bargaining table or at a campaign phone bank, ought to be borne by everyone, whether they like it or not. SEIU Local 1000 saw its special assessment, even if refunded, as a good investment, an interest-free loan that could deliver victory at the polls.

For the record, Proposition 75 was defeated by 53.5 percent to 46.5 percent. Proposition 76 lost by the even larger margin of 62.4 percent to 37.6 percent. It’s not inconceivable that the unions’ combined advertising blitz was crucial to the outcome, especially in the closer Prop. 75. A statewide Field Poll conducted in June 2005 had found that 61 percent of likely voters supported that measure and only 32 percent opposed it. Something must have swung the tide in the unions’ favor. It would be hard to deny their public relations outreach had something to do with it. The unions’ bigger victory came afterward. Gov. Schwarzenegger over the next several years was noticeably gun-shy about offending the unions. It was only during the closing months of 2010, and of his administration, that “the Governator” managed to coax substantial budget compromises from public-sector unions and their Democratic Party supporters. The Supreme Court decision in Knox was guided by principle rather than politics, but notwithstanding, it will make it harder for unions to bankroll political campaigns at the expense of reluctant employees.

The timing couldn’t be more urgent. The City of Stockton, California, with a population of nearly 300,000 and an outstanding debt load of $700 million, is almost certain to declare Chapter 9 bankruptcy by July 1. While unusually high levels of mortgage loans to homebuyers who couldn’t afford them is the main reason – Stockton in recent years has been known as the nation’s “foreclosure capital” – the City’s entry into unsustainable multiyear health care and pension agreements with public-sector unions has contributed greatly as well. Despite eliminating one-fourth or more of all police and fire protection positions since 2009, the City remains well in the red and plans to temporarily suspend debt service payments. Meanwhile, recent data show large and widening shortfalls in union-negotiated state and local government pension plans throughout the nation. These gaps are so large that in some cases they may trigger a public bailout, unwelcome a thought as that is. Union leaders, unfortunately, are more concerned with their interests than with potential negative consequences of realizing them. And they know how to make life miserable for public officials who stand in their way – witness the nearly successful union-driven recall of Wisconsin Republican Governor Scott Walker and the voter repeal of union curbs in Ohio last November only months after enactment at the strong urging of Republican Governor John Kasich.

Public-sector unions, like any type of interest group, Left or Right, know that money is essential to running a successful political campaign. They also know that true believers on either side of an issue normally won’t be dissuaded by television ads, leaflets, signs, phone calls and other tools of persuasion. Swing voters, by contrast, can be. Unions will do what it takes to secure funding, whether voluntarily or not, to bring swing voters around. The U.S. Supreme Court, in Knox v. SEIU, once again has affirmed the principle that funding for political projects must be voluntary. But if Service Employees International Union Local 1000 had been willing to accept well-established precedent, this case never would have materialized in the first place.